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Outlook for the Auto Industry

Outlook for the Auto Industry. University of Michigan * Auto Lunch Series September 11, 2006. Auto Industry Leading Indicators. Ability To Buy. August ’05 August ‘06 Disposable Income Green Yellow Household Debt Green Yellow Yield Curve Green Red

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Outlook for the Auto Industry

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  1. Outlook for the Auto Industry University of Michigan * Auto Lunch Series September 11, 2006

  2. Auto Industry Leading Indicators Ability To Buy August ’05August ‘06 Disposable Income Green Yellow Household Debt Green Yellow Yield Curve GreenRed Inflation GreenRed Composite Green Red

  3. Real Disposable Income Per Household % Change Year Over Year 6.6% 1.1% July - 4.2%

  4. Consumer Debt Payments Installment, Mortgage & Auto Leases % of Disposable Personal Income 15.4% 14.7%June

  5. The Yield Curve 10 Yr Minus 1 Yr Treasuries Percentage Points Oil Shock Oil Shock - 0.21% Aug -15 -12 -19 -13 -14 -11 -12

  6. U.S. Federal Funds Target Percent 6.50 5.25 1.00

  7. Consumer Prices All Items, Not Seasonally Adjusted % Change Yr/Yr 14.8% 4.1% July 6.3%

  8. Consumer Prices: Core Inflation All Items Less Food & Energy, NSA % Change Yr/Yr 13.6% 5.6% 2.7% July

  9. New Vehicle Consumer Prices % Change Year/Year + 0.4% July Monthly Data

  10. Auto Industry Leading Indicators Willingness to Buy August ’05August ‘06 Consumer Attitudes Green Yellow Unemployment Claims Green Green Workweek YellowGreen Stock Market GreenGreen Composite Green Green

  11. Consumer Attitudes Average of U of M & Conference Board Index 128.4 90.8 Aug 58.1 Source: University of Michigan & The Conference Board

  12. Buying Conditions for Vehicles During Next 12 Months Index 165 164 Good 124 August 119 Bad 104 Source: University of Michigan

  13. Buying Conditions for Houses During Next 12 Months Index Good 175 175 117 August Bad 106 102 Source: University of Michigan

  14. Initial Unemployment Claims 4 Week Moving Average Thousands 674 501 497 315 287 268

  15. Manufacturing Workweek Includes Part-time & Overtime Hours 41.3 August 40.0 39.7

  16. U. S. Productivity % ChangePrevious Quarter SAAR 9.6

  17. Stock Market Dow Jones Industrial Average Index 11,257Aug

  18. U. S. Economic Growth Quarterly SAAR Data % change 7.5% 6.4% 5.6% 2.9%

  19. The Effect of Gas Prices on Auto Sales

  20. U. S. Auto Industry Sales Light Vehicles, Million Units YTD 2006 2004 2005 Total Industry 17.3 17.4 17.2

  21. Oil Prices 2005 Dollars Per Barrel Oil Shock Oil Shock $94 $ 73 August Real Nominal

  22. OPEC Spare Capacity MMB/D PIRA Forecast

  23. Major Output Risks 2006 Q2 Saudi Arabia: 9.3 MMB/D Infrastructure Sabotage Iraq: 1.9 MMB/D Pipeline Sabotage Political Instability Iran: 3.9 MMB/D Confrontation Over Nuclear Weapons Possible UN Sanctions Notional Spare Capacity 0.84 MMB/D Venezuela: 2.6 MMB/D Post-Referendum Lack of Investment Lingering Strike Effects Russia: 9.3 MMB/D Yukos Affair Pipeline Sabotage Chechnya Nigeria: 2.3 MMB/D Labor Tensions Ethnic Tensions Weather Accidents Loading Delays

  24. Oil Inventories U.S. Excluding Strategic Reserve Units Millions of Barrels

  25. Oil Futures Speculation Crude Oil, Light Sweet Non-Commercial Long Positions # of Contracts

  26. Current Oil Price Forecasts West Texas Intermediate, $/bbl Actual Forecast * 2004 2005 2006 2007 PIRA Global Insight Macro Advisors Energy Information Agency Average $ 41 $ 56 $ 70 72 71 69 $ 71 $ 67 76 74 69 $ 72 * July ’06

  27. Gasoline Prices Average All Types Cents Per Gallon (2005 $) $3.00 August $3.06 Real $1.13 Nominal

  28. Consumer Spending Energy Goods & Services % of Disposable Income 6.3% July

  29. Cost Per Mile Driven Cents Trucks Cars

  30. Importance of Fuel Economy inVehicle Buying Decisions Ranking 2001 2002 2003 2004 2005* 2006 22nd 19th 13th 11th 9th 4th * Pre-Katrina/Rita

  31. U. S. Auto Industry Car/Truck Mix % Share of Light Vehicle Industry Cars Trucks

  32. U. S. Auto Industry Car/Truck Mix % Share of Light Vehicle Industry Trucks Cars

  33. U.S. Auto Industry Market Share: Light Trucks Share of Total Light Vehicle Industry Pickups Full & Large SUVs Minivans Mid Size SUVs Sports Tourers Small & Compact SUVs

  34. Used Vehicle Prices & Gasoline Compact Cars & Full Size SUVs Cents per Gallon % Change Yr/Yr Compact Car (left scale) Gas Prices (right scale) Full Size SUVS (left scale)

  35. U. S. Auto Industry SUV On-Road / Off-Road Mix % Share of SUV Off-Road On-Road

  36. Light Vehicle Production Industry, NAFTA Q1 Q2 Q3 Q4 Total (in 000) 2005 2006 2007 3,965 4,130 3,990 4,138 4,102 3,983 3,731 3,473 3,701 3,919 3,468 3,826 15,753 15,173 15,500 % Change Yr/Yr ’06/’05 ’07/’06 +4.2% - 3.4% - 0.9% - 2.9% - 6.9% +6.6% - 11.5% 10.3% - 3.7% +2.2%

  37. U. S. Auto Industry Sales Stock and Days Supply Stock Days Supply Chrysler Group General Motors Ford Motor Co. 503 969 662 76 72 75

  38. U. S. Auto Industry Sales Forecast Consensus 2006 2007 Outsiders Blue Chip DaimlerChrysler 17.1 17.1 17.3 17.0 16.8 17.0 Outsides include Global Insight, J.D. Power, CSM & Mike Lucky

  39. U.S. Auto Industry Number of Vehicles per Year Million Units Oil Shock Oil Shock 17.8 1.0%/Yr 16.3 15.4 0.8%/Yr 2%/Yr 12.5 10.5 4%/Yr

  40. Worldwide Vehicle Sales Passenger Vehicles 2006 Total Worldwide Sales 57 M 2017 Total Worldwide Sales 71 M ROW 26.1% ROW 22.8% NAFTA 33.7% India 4.6% NAFTA 30.8% India 2.1% China 9.8% China 6.8% Japan 7.1% Japan 8.4% W. Europe 26.2% W. Europe 21.6%

  41. Segment Growth – 2006 - 2017 Volume, Thousands of Units China India ROW World NAFTA W. Europe Japan 302 91 -193 58 306 116 514 964 377 371 2,906 -126 74 -30 26 59 153 172 265 -9 1 585 216 43 17 22 1 -167 27 87 53 4 303 671 933 358 278 22 400 64 254 110 114 3,151 1,240 102 33 11 1 322 114 45 158 99 2,124 2,150 1,207 192 176 47 602 114 442 264 551 5,744 4,400 2,449 378 570 436 1,425 1,004 2,057 953 1,140 14,812 Small Car Compact Car Standard Car Luxury Car Specialty Car MPV Sports Tourer SUV (On) SUV (Off) Pick-up TOTAL PV

  42. Segment Growth – 2006 - 2017 Percent of Total World PV Growth China India ROW NAFTA W. Europe Japan 6.9 3.7 -51.1 10.1 70.2 8.1 51.1 46.9 39.5 32.6 19.6 -2.9 3.0 -7.9 4.5 13.6 10.7 17.1 12.9 -0.9 0.1 4.0 4.9 1.8 4.5 3.8 0.2 -11.7 2.7 4.2 5.5 0.3 2.0 14.0 38.1 94.9 48.7 5.0 28.1 6.3 12.3 11.6 10.0 21.3 28.2 4.2 8.7 1.9 0.2 22.6 11.3 2.2 16.5 8.7 14.3 48.9 49.3 50.8 31.0 10.7 42.2 11.4 21.5 27.7 48.3 38.8 Small Car Compact Car Standard Car Luxury Car Specialty Car MPV Sports Tourer SUV (On) SUV (Off) Pick-up TOTAL PV

  43. Conclusions • Economic growth expectations for the second half of 2006 are for below trend at 2.5% due to a combination of the downturn in the housing market, the volatility in the oil markets and high commodity prices. • The Federal Reserve held the Fed Funds rate at 5.25% at its August meeting ending its tightening bias. The meeting minutes from the FOMC indicate that more hikes might be needed due to continuing concerns over consumer prices. The consensus remains for a hike to 5.5% by the end of the year. • Consumer confidence lost ground overall in August, but showed some improvement toward the end of the month as gas prices and inflation expectations fell. Home and vehicle buying attitudes were at their lowest levels since 1990. • The end of the peak driving season and the lack of hurricane activity in the Gulf of Mexico have brought gasoline prices down by over 30 cents per gallon. Most analysts expect the drop to be limited; the hurricane season is only half over, strong world demand is still evident, and geopolitical risks still remain. • Auto industry sales will likely continue to move towards more fuel efficient vehicles. The shifts between segments will not be great, but consumers will shift within segments to more efficient entries. Overall industry sales are likely to be flat to down this year (with risks on the down side) and down modestly in 2007 as the economy slows and consumers feel the pinch of higher debt service costs and falling housing prices, as well as continued expensive energy.

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